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Roth Solo 401k

What is a Roth Solo 401k?

Participants in a Solo 401k can elect to make Roth 401k contributions only with the salary deferral portion of the Solo 401k. In 2012 the Roth 401k salary deferral contribution limit is $17,000 ($22,500 if age 50 or older). Roth Solo 401k salary deferral contributions are not tax deductible, but withdrawals are tax free after age 59 provided the 5 year rule is satisfied.

Note: The profit sharing portion of the Solo 401k contribution is not eligible to be made as a Roth contribution. Profit sharing contributions are made pre-tax and are tax deductible.

The basic difference between a Roth Solo 401k and a Traditional Solo 401k is that the Roth 401k is funded with after-tax contributions while the Traditional 401k is funded with pre-tax contributions. In other words, with a Roth 401k you pay taxes today in return for a tax-free withdrawals in retirement. Traditional 401k contributions are tax deductible and are made pre-tax so you save taxes today, but withdrawals are taxed in retirement.

Learn more about the Roth Solo 401k.

 

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Disclosures:

*The information on this page is for informational purposes only and does not constitute, and should not be construed as, professional, legal or tax advice. To determine your individual tax situation and specific needs, please consult a professional tax advisor.

*Information contained in these sections merely highlight some benefits. There are risks involved with all investments that could include tax penalties and risk/loss of principal.